Market Commentaries

  • Last Week’s Markets in Review: Employment Data Supports Powell’s Cautious Tone


    Global equity markets finished higher for the week. In the U.S., the S&P 500 Index closed the Week at a level of 4,959, representing an increase of 1.41%, while the Russell Midcap Index moved 0.66% last Week. Meanwhile, the Russell 2000 Index, a measure of the Nation’s smallest publicly traded firms, returned -0.77% over the Week. As developed international equity performance and emerging markets were slightly higher, returning 0.02% and 0.32%, respectively. Finally, the 10-year U.S. Treasury yield moved lower, closing the Week at 4.02%.

    The FOMC took no action to change the Target Rate from its current position of 5.25% to 5.50% during last week’s meeting, and the first rate decision for the Federal Reserve in 2024. This was exactly what the market expected from the Federal Reserve at this meeting. It was Chairman Powell’s comments that started to go against market sentiment. Prior to the meeting on Wednesday, the market probability of a 25 Bp reduction at the next FOMC meeting (March 20th) stood at 46.2% utilizing the CME FedWatch Tool. The Fed chair stated that the central bank’s next meeting was likely too soon for a rate cut. He further stated in subsequent interviews that the Federal Reserve remains on track to cut interest rates three times this year. In December, Fed officials indicated through the “Dot Plot” that they envisioned three rate cuts in 2024, reducing their benchmark rate to approximately 4.6%. “With inflation steadily cooling, nearly all the 19 members of the FOMC have agreed that cuts in rates will be appropriate this year.” These comments moved the market, with the current probability of a 25 Bp reduction at the next FOMC meeting now standing at 17.5%.

    Powell’s cautious tone was supported by the employment data throughout the week. Beginning with the JOLTS report on Tuesday, actual job openings reported for December were 9.03 million, exceeding the consensus estimate of 8.79 million or 2.7%. Market participants downplayed an uptick in Jobless Claims reported on Thursday. Applications for unemployment benefits climbed to 224,000 for the week ending Jan. 27th, an increase of 9,000 from the previous week.

    On Friday, domestic employers delivered an unexpected burst of hiring to begin the new year, adding 353,000 jobs in January in the latest sign of the economy’s continuing ability to battle higher interest rates. The January performance greatly exceeded the consensus estimate of 170,000 new jobs. The Unemployment Rate remained at 3.7% but sits slightly higher than the 3.4% reading a year ago.

    Best wishes for the week ahead!

    FOMC data is sourced from the Federal Reserve. Employment data is sourced from The Labor Department. Economic Calendar Data from Econoday as of 2/5/24. International developed markets are measured by the MSCI EAFE Index, emerging markets are measured by the MSCI EM Index, and U.S. Large Caps are defined by the S&P 500 Index. Sector performance is measured using the GICS methodology.

    Disclosures: Past performance does not guarantee future results. We have taken this information from sources that we believe to be reliable and accurate. Hennion and Walsh cannot guarantee the accuracy of said information and cannot be held liable. You cannot invest directly in an index. Diversification can help mitigate the risk and volatility in your portfolio but does not ensure a profit or guarantee against a loss.

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